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S&P real estate sector rises in first day of trading

Las Vegas, Nevada
Jacob Kepler | Bloomberg | Getty Images
Las Vegas, Nevada

There's a new sector in the closely followed S&P 500, and it's off to a good start.

Real estate traded as its own sector within the benchmark for the first time on Monday and rose 0.75 percent. The sector, which is made up of 28 components, was led higher by a 1.8 percent gain in Equinix. Real estate also outperformed financials, the sector it was once part of, which were up 0.71 percent.

JJ Kinahan, chief strategist at TD Ameritrade, said two of the main drivers behind the sector's good start are surprisingly strong homebuilders sentiment and the low market expectations the Fed will raise rates later this week.

"There doesn't seem to be a threat to values, so it continues to be a healthy market," Kinahan said. "It will get tested [in two weeks] when we get the jobs report."

Market expectations that the Fed will raise interest rates on Wednesday were low on Monday after briefly spiking earlier this month. But Lindsey Piegza, chief economist at Stifel Fixed Income, said the odds of a rate hike this month are "well under 20 percent," in her view.

"We're not really looking for the Fed to make any policy change," she said, noting the recent stream of economic data has been mixed.


Most of the sector had been hit hard by heightened concerns the Fed would raise rates as only one component is positive over the past month.

"I was a little surprised at the sell-off on REITs about two-to-three weeks ago," said Jamie Anderson, managing principal of Tierra Funds. "I expected the introduction of the sector to be an attractor of assets coming into real estate."

"At this point, the daily trading and level appears to correspond to the issues, more than new buying or selling, or issues related to the separation from the financial sector or its new sector status," Howard Silverblatt, senior Index analyst at S&P Dow Jones Indices, said in an email, noting that while the sector was outperforming the overall index, it is "not a leader."

The S&P rose 0.2 percent in afternoon trade, led by utilities, real estate and financials.

"One of the major differences between the Financials and the Real Estate sector is that Financials are expected to benefit from higher interest rates (margins), as higher interest rates would cost Real Estate more via leveled borrowings, and potentially cut into dividend payments," Silverblatt said.